Description
This is a presentation about economics of Sugar Industry of India Presentation
Economics of Sugar Industry of India
OVERVIEW – SUGAR INDUSTRY
•
•Second largest agro-based industry after textiles •Essential item of mass consumption •. Sugarcane is the key raw material for the production of sugar •India - Largest consumer of sugar and the second largest sugar producer in the world •Contributes an estimated Rs. 17 billion annually to the national exchequer and treasuries of various state governments
SUGAR PRODUCTION
MARKET SCENARIO
•Existence of different ownership and management structures since the beginning of the 20th century 1. Private 2. Cooperative factories 3. State - owned
•The sugar manufacturing industry is highly fragmented •Lower sugar plant size 1. Existence of traditional industries like Gur and Khandsari 2. Lesser cane availability and competition for cane •Minimum capacity criteria for new sugar mills standing at 2,500 tcd •Average plant sizes(3500tcd) have increased in recent years but cane availability is the limiting factor behind increasing plant size.
PROBLEMS
• A major problem is that it suffers from too many interventions by authorities. • Wide fluctuations in sugarcane and sugar production in India. •Under utilization of capacity of Sugar Mills
EXCESSIVE REGULATION
•The Government of India regulates & controls the rates of sugarcane supplied to the mills •Fixed a statutory minimum price (SMP) •The Rationale: Protect the farmers from price fluctuations as they are poor
P
SMP
•The central government fixes the statutory minimum price in respect of each sugar season by considering the following: 1. Cost of production of sugarcane. 2. Return to the growers from alternative crops 3. General trend of prices of agricultural commodities 4. Availability of sugar to consumers at a fair price 5. Recovery of sugar from sugarcane.
Release Mechanism of Sugar
Free Sale Sugar
Levy Sugar
•20% is sold as levy to State Governments •80% through free market •Adverse effect on profitability of mills
Variation in Supply of Sugarcane
•Sugar Industry Cycle
Cyclicity: Causes
•Lower/excess sugarcane production followed by high/low sugar prices. •. Whenever sugar production is high, the sugar prices will go down but not the sugarcane price •price issues and payments to farmers start dwindling
Effects
•Cane price issues and payments to farmers start dwindling • Farmers switch to other more profitable cash •Consequent shortage of sugar results in an increase in sugar prices
Underutilization of Capacity
Notion of capacity output 1.Physical/Engineering concept 2.Economic Concept
Underutilization of Capacity
•Low capacity utilization and inadequacy of raw material had led to the closure of 100 sugar factories in India in the past decade •Non-availability of finance from institutions to new sugar factories and to existing factories for expansion •Resulted in high production costs
Measures •Minimum capacity criteria for new sugar mills •Water resource management •Adequate and regular power supply
Policy Recommendations
Policy recommendations
?
Increase sugarcane production ? Remuneration to farmers to prevent shift to other crops
? Plantation of high yielding variety of cane ? For eg. Uttar Pradesh : Potential yield -> 70 MT/Ha Actual yield -> 50 – 55 MT/Ha ? Deficit due to plantation of low yielding varieties of cane
Policy recommendations
?
Deregulation ? New price fixing formula for cane ? Couple sugarcane price with sugar & by-product prices ? Regularize farmers’ income by revenue sharing
? End to the current levy system ? Govt. should procure their share of sugar from free market
CONCLUSION
? ?
Sugar industry – highly regulated Increase in cap on sugar exports (Aug 12, 2011) ? In 2010, export of sugar was prohibited causing surplus & loss to farmers ? For 2011-12, out of expected 26.5 mn tonnes of sugar production only 2.2 mn tonnes was permitted for export ? On Aug 12, 2011 FM increased export by additional 5 mn tonnes ? Increase in exports will capitalize on high global sugar price & will curb surplus ? Expected gain to farmers from free trade = Rs. 500/quintal
2.3
2.2
expected domestic demand Permited export 22 Expected Surplus
Pie chart showing util. of expected 26.5 mn tonnes of sugar, 2011-12 (* all fig. in million tonnes)
CONCLUSION (Cont.)
Support of Govt. and credit institutions needed by sugar mills to have economies of scale ? Urgent need for liberalize pricing mechanism ? Difficult to de-regularize sugar industry ? Govt. fears mills might stop supplies to ration shops ? Hoarding might lead to price rise & inflation ? Co-operative mills will be subjected to cut throat competition & price volatility ? Smaller private mills will not be able to cope up with competition ? The need of the hour ? Long term growth-oriented policies ? Fair system for determination of cane price
?
doc_450996798.pptx
This is a presentation about economics of Sugar Industry of India Presentation
Economics of Sugar Industry of India
OVERVIEW – SUGAR INDUSTRY
•
•Second largest agro-based industry after textiles •Essential item of mass consumption •. Sugarcane is the key raw material for the production of sugar •India - Largest consumer of sugar and the second largest sugar producer in the world •Contributes an estimated Rs. 17 billion annually to the national exchequer and treasuries of various state governments
SUGAR PRODUCTION
MARKET SCENARIO
•Existence of different ownership and management structures since the beginning of the 20th century 1. Private 2. Cooperative factories 3. State - owned
•The sugar manufacturing industry is highly fragmented •Lower sugar plant size 1. Existence of traditional industries like Gur and Khandsari 2. Lesser cane availability and competition for cane •Minimum capacity criteria for new sugar mills standing at 2,500 tcd •Average plant sizes(3500tcd) have increased in recent years but cane availability is the limiting factor behind increasing plant size.
PROBLEMS
• A major problem is that it suffers from too many interventions by authorities. • Wide fluctuations in sugarcane and sugar production in India. •Under utilization of capacity of Sugar Mills
EXCESSIVE REGULATION
•The Government of India regulates & controls the rates of sugarcane supplied to the mills •Fixed a statutory minimum price (SMP) •The Rationale: Protect the farmers from price fluctuations as they are poor
P
SMP
•The central government fixes the statutory minimum price in respect of each sugar season by considering the following: 1. Cost of production of sugarcane. 2. Return to the growers from alternative crops 3. General trend of prices of agricultural commodities 4. Availability of sugar to consumers at a fair price 5. Recovery of sugar from sugarcane.
Release Mechanism of Sugar
Free Sale Sugar
Levy Sugar
•20% is sold as levy to State Governments •80% through free market •Adverse effect on profitability of mills
Variation in Supply of Sugarcane
•Sugar Industry Cycle
Cyclicity: Causes
•Lower/excess sugarcane production followed by high/low sugar prices. •. Whenever sugar production is high, the sugar prices will go down but not the sugarcane price •price issues and payments to farmers start dwindling
Effects
•Cane price issues and payments to farmers start dwindling • Farmers switch to other more profitable cash •Consequent shortage of sugar results in an increase in sugar prices
Underutilization of Capacity
Notion of capacity output 1.Physical/Engineering concept 2.Economic Concept
Underutilization of Capacity
•Low capacity utilization and inadequacy of raw material had led to the closure of 100 sugar factories in India in the past decade •Non-availability of finance from institutions to new sugar factories and to existing factories for expansion •Resulted in high production costs
Measures •Minimum capacity criteria for new sugar mills •Water resource management •Adequate and regular power supply
Policy Recommendations
Policy recommendations
?
Increase sugarcane production ? Remuneration to farmers to prevent shift to other crops
? Plantation of high yielding variety of cane ? For eg. Uttar Pradesh : Potential yield -> 70 MT/Ha Actual yield -> 50 – 55 MT/Ha ? Deficit due to plantation of low yielding varieties of cane
Policy recommendations
?
Deregulation ? New price fixing formula for cane ? Couple sugarcane price with sugar & by-product prices ? Regularize farmers’ income by revenue sharing
? End to the current levy system ? Govt. should procure their share of sugar from free market
CONCLUSION
? ?
Sugar industry – highly regulated Increase in cap on sugar exports (Aug 12, 2011) ? In 2010, export of sugar was prohibited causing surplus & loss to farmers ? For 2011-12, out of expected 26.5 mn tonnes of sugar production only 2.2 mn tonnes was permitted for export ? On Aug 12, 2011 FM increased export by additional 5 mn tonnes ? Increase in exports will capitalize on high global sugar price & will curb surplus ? Expected gain to farmers from free trade = Rs. 500/quintal
2.3
2.2
expected domestic demand Permited export 22 Expected Surplus
Pie chart showing util. of expected 26.5 mn tonnes of sugar, 2011-12 (* all fig. in million tonnes)
CONCLUSION (Cont.)
Support of Govt. and credit institutions needed by sugar mills to have economies of scale ? Urgent need for liberalize pricing mechanism ? Difficult to de-regularize sugar industry ? Govt. fears mills might stop supplies to ration shops ? Hoarding might lead to price rise & inflation ? Co-operative mills will be subjected to cut throat competition & price volatility ? Smaller private mills will not be able to cope up with competition ? The need of the hour ? Long term growth-oriented policies ? Fair system for determination of cane price
?
doc_450996798.pptx